Jobaaj Stories
In April 2025, the UK government implemented significant reforms to the Child Benefit system, aiming to provide better support for middle-income families. The most notable change is the increase in the income threshold for the High Income Child Benefit Charge (HICBC). Previously, families with an individual earning over £50,000 faced a gradual reduction in their Child Benefit. Now, this threshold has been raised to £60,000, with the benefit being fully withdrawn only when income reaches £80,000.
💷 Understanding the High Income Child Benefit Charge (HICBC)
The HICBC is a tax charge applied to individuals whose income exceeds the specified threshold and who receive Child Benefit. For every £100 of income over £60,000, 1% of the Child Benefit must be repaid. This means that at £70,000, 10% is repaid; at £80,000, the entire benefit is clawed back.
🧮 How to Calculate Your Adjusted Net Income
Adjusted net income includes your total taxable income before personal allowances, minus certain tax reliefs such as:
-
Pension contributions
-
Gift Aid donations
-
Trading losses
It's essential to calculate this accurately to determine your HICBC liability. HMRC provides an online calculator to assist with this process.
🏦 Strategies to Reduce HICBC Liability
Higher earners can employ several strategies to reduce their adjusted net income and, consequently, their HICBC:
-
Increase Pension Contributions: Contributing more to your pension can lower your taxable income. For instance, a 40-year-old earning £75,000 who increases monthly pension contributions from £200 to £600 could retain £1,913.86 annually in Child Benefit and boost retirement savings by over £167,000 by age 68.
-
Gift Aid Donations: Donating to charity under Gift Aid can also reduce your adjusted net income.
-
Salary Sacrifice Schemes: Engaging in salary sacrifice arrangements for benefits like childcare vouchers or cycle-to-work schemes can lower your taxable income.
👶 Importance of Claiming Child Benefit
Even if your income exceeds £80,000, it's advisable to claim Child Benefit and opt out of payments to:
-
Ensure your child automatically receives a National Insurance number at age 16
-
Accrue National Insurance credits, which count towards your state pension.
Failing to claim can result in missed entitlements and future complications.
💡 How to Maximize Your Child Benefit Income
To make the most of your Child Benefit entitlement, strategic income planning is key. One of the most effective ways is to reduce your “adjusted net income” by contributing more to your pension, using salary sacrifice schemes, or making Gift Aid donations. These deductions can lower your income below the £60,000 threshold or reduce how much of the High Income Child Benefit Charge (HICBC) you owe. Even if your income is over £80,000, it’s still beneficial to claim the benefit and opt out of payments, as this preserves your National Insurance credits—essential for your State Pension—and ensures your child gets their National Insurance number automatically at age 16. With careful tax planning, many high earners can retain some or all of the Child Benefit while securing long-term financial benefits for their family.
📅 Upcoming Changes: Household-Based Assessment
Currently, the HICBC is assessed based on individual income, which can be seen as unfair to single-income households. The government plans to shift to a household-based assessment by April 2026, aiming for a more equitable system .
✅ Conclusion
The 2025 reforms to the Child Benefit system offer increased support to middle-income families by raising the HICBC threshold to £60,000 and phasing out benefits only at £80,000. Understanding these changes and implementing strategies to manage your adjusted net income can help maximize your entitlements and reduce tax liabilities.
